Once you have chosen your indicators, you can review them by looking back on the chart to see whether they help you find important trend changes in advance or at least in a timely manner. Try using the RSI indicator and notice the support/resistance levels in bull and bear markets.
Large institutional investors may use monthly charts for their guiding principles in the current portfolio. For individual investors, monthly charts are a great support tool for buying stocks and building confidence based on longer-term indicators.
The image below shows a monthly area chart for copper stock ($COPPER). These three questions are valuable. Where is the price on the right-hand side? Have any trends been broken? Where are the horizontal support/resistance levels?
Chart courtesy of StockCharts.comA monthly area chart.
Copper has moved from the 50 percent level on the scale to about three-fourths of the way up. It has also broken a five-year downtrend. The 12-month moving average does a great job of highlighting bull and bear markets.
Copper was used to show that you can view industrial metals and other commodities on the StockCharts.com website. Here are some details to pick up from the chart above:
- The relative strength of copper compared to the S&P 500 ($SPX) is above two-year highs, so this chart is outperforming the $SPX. That is a strong first signal.
- The accumulation/distribution line is at new highs, so that is very bullish.
- The volume is very, very strong and supportive.
- The percentage price oscillator (PPO) is above zero, and a major momentum downtrend has been broken. This is clearly a bullish tone for the metal.
The image below shows the settings for the monthly area chart. In particular, note that the chart was set to a monthly period over a range of 18 years. A simple moving average was used and set the color to green so you can easily see it against the black price line. The following indicators were also set: Price, Accum/Distribution line, Volume, and Pct Price Oscillator (PPO). Save your monthly line chart ChartStyle.
Chart courtesy of StockCharts.comSettings for the monthly area chart.
You may prefer the line chart to the area chart or vice versa. You may find you want to do more with area charts because you find them easier to use. Try using daily or weekly settings on area charts to see whether doing so helps you get around the detail of candlestick and bar charts.